Australia’s Tax Carrot has advantages

Karl FitzgeraldCommentaryLeave a Comment

Ross Gittins comments in Our Tax system should be different that the Swan Tax and Transfer review compares Australia’s tax take with OECD averages in an insecure light. Our company tax level is the eighth highest in the OECD and property taxes are 9% rather than the 6% average.

Lobbying forces are lining up to pressure for lower company, property and capital gains taxes. Gittins points out though that:

If it is true that we need to tax capital less because it is now so mobile in a globalised economy, all the more reason we should stick to our taxes on the one resource that is immovable, real estate.

Placing holding charges on land has been identified by the OECD as the most efficient way to raise revenue. So too agrees David Uren at the Oz

It is a long-established principle of taxation that the incidence should be greatest on the least mobile factors of production: hence higher rates of annual taxation on property are warranted, as too may be taxes on consumption.

We believe that company taxes can be lowered only when land based charges are raised. Land based holding charges have been the anchors to which the Great Australian Dream has been anchored. It has only been since the neo-liberal paradigm has taken off over the last 25 years that we have seen lower holding charges and thus higher land prices. Anyone for higher company taxes?

With the loopholes prevalent in our 10,000 page plus tax law book, this allows many companies to pay barely 1/5 of the asking contribution. Why not remove the compliance in such ‘tax minimisation’ with a revenue neutral switch to the more efficient form of holding charges on land?

Whilst land is the most efficient form of revenue raising, consumption is the most regressive and complicates the involvement of government in the economy, requiring the ‘transfer’ payments the government is trying to simplify with the review.

Land based charges are the most effective way to both widen the tax base and reduce over all tax levels. In a globalised world, a lower tax burden would be complemented with lower land prices, encouraging more productive activity and less speculation. The urban density and self funding public infrastructure required to meet sustainability objectives are beneficial spinoffs from such a reform and meet the objectives of the review.

Thus property taxes should be reformed and enhanced, never reduced. Will vested interests keep out of the way at this crucial juncture to allow reasoned debate?

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